Three pre-Christmas judgments: (1) Bankrupt refused suspension of discharge to pursue IVA; (2) Another failed attempt to prove England COMI; and (3) Receiver refused payment of costs after restraining order set aside

• Bramston v Haut – reverses earlier judgment and decides that the bankrupt’s attempt to suspend his automatic discharge in order to propose an IVA fails (and includes a warning about the statutory requirements for Nominees’ reports)
• The O’Donnells v The Bank of Ireland – decision on COMI sends away Irish couple from obtaining E&W Bankruptcy Orders
• CPS v The Eastenders Group – upholds decision that Court-appointed Receiver was not entitled to be paid from third party assets, but also decides that, at least under the Proceeds of Crime Act 2002, neither should the CPS pay. Note: this is subject to a Supreme Court appeal. (UPDATE 08/05/14: The Supreme Court has allowed the Receiver’s appeal that his fees be paid by the CPS (but has maintained that the third party assets are out of his reach). For a more detailed summary, see http://wp.me/p2FU2Z-6S.)

Summary: The appeal was allowed; the judge’s view was that the earlier order suspending the debtor’s discharge from bankruptcy ought to have been set aside. Lord Justice Kitchin believed that the discharge was suspended, not because of the debtor’s failure to comply with his obligations or for any other purpose that might be within S279(3), but to give the debtor time to put forward an IVA proposal. The judge stated that, it seemed to him, this was “impermissible and outside the scope of the jurisdiction conferred by S279(3)” (paragraph 52).

The judgment includes a reminder on the necessary wording of Nominees’ reports, which, although it surprised me that an IP could have slipped up on this, may serve as a warning to IPs to double-check that their own reports meet the statutory criteria.

The Detail: A good summary of the pre-appeal position is given on page 18 of Lawrence Graham’s August 2012 edition of The Angle. In brief, the debtor had applied under S279(3) for the suspension of his discharge from bankruptcy so that he could put forward an IVA proposal, but the Trustee had opposed the suspension as he had concerns about various aspects of the proposal. The previous judge had dismissed the Trustee’s challenge on the basis that approval of the IVA proposal was a matter for the creditors and he viewed the Trustee as unreasonable for refusing to make the S279(3) application himself in order to block the IVA proposal.

The judge on appeal considered that the purpose of the power conferred by S279 is to extend the bankruptcy to ensure that the bankrupt continues to suffer the disabilities of an undischarged bankrupt until he complies with his obligations. At the time that this debtor had applied for the discharge suspension, his position was that he had complied with all of the Trustee’s demands, albeit that later the Trustee contended the opposite when he sought to have the order set aside.

Kitchin LJ suggested that the debtor could have applied for an interim order under S253, which could, via S255(4), include suspension of the automatic discharge. He pointed out that, to do so, the debtor would have to have given notice of the application both to the OR and the Trustee, which he did not do.

Such an application also would have required the submission of the Nominee’s report on the IVA proposal. In this case, although a Nominee’s report was submitted, it did not comply with S256A or S256(1) as it stated merely that the debtor, not the Nominee, was satisfied that the IVA had a reasonable prospect of being approved and implemented. As I mentioned above, perhaps we should all make doubly-sure that Nominees’ reports are compliant in this regard.

Consequently, the judge concluded that, even if the debtor had applied for an interim order under S253, “it would inevitably have foundered” and thus “the judge fell into error concluding that the court had jurisdiction” to make the order suspending the discharge (paragraphs 64 and 65).
In considering whether the Trustee had been unreasonable to refuse to make an application himself under S279, Kitchin LJ stated: “I do not understand it to be one of the duties of a trustee that he must respond affirmatively to a bankrupt’s request that he co-operate in the promotion of a proposal for an IVA. Furthermore, in the circumstances of this case, the Trustee believed that Mr Haut was in continuing default of his obligations and that the Second Proposal was defective, prejudicial to the interests of the creditors who had no personal connection to Mr Haut and appeared to be designed to thwart his efforts to carry out a proper investigation into Mr Haut’s affairs. Yet the order Mr Haut invited the Trustee to seek was intended to give Mr Haut an opportunity to put the Second Proposal before his creditors and thereafter secure the annulment of his bankruptcy with all the consequences the Trustee was anxious to avoid” (paragraph 73) and he thus concluded that this was far from a case where the Trustee had acted perversely.

Summary: An apparent permanent move to London prior to the presentation of bankruptcy petitions was insufficient to prove that the debtors’ COMI had moved to England, because it was not ascertainable to third parties.

The Detail: The Bank opposed petitions by Mr and Dr O’Donnell for English bankruptcy orders, presented in March 2012, alleging that the debtors’ COMI had always been Ireland, where its own petitions had been adjourned awaiting outcome of the EWHC case.

The O’Donnells maintained that they had left Ireland permanently in December 2011. Dr O’Donnell said that “she did not wish to live in a ‘bankocracy’”, “‘the onslaught and negative publicity, et cetera, that the Bank of Ireland have generated against us in the media has created such an atmosphere of hate and nastiness that I think we no longer wish to live in Ireland’” (paragraph 50).

Although the judge accepted that the O’Donnells intended to stay in London, he considered that the O’Donnells’ COMI was still in Ireland when the petitions were presented, largely because that is what it seemed an objective observer would have concluded by reason of information held on the Irish Companies Registration Office, the UK Companies House, and on the website of one of the O’Donnells’ companies. Consequently, the O’Donnells’ bankruptcy petitions were dismissed.

Summary: Receivership and restraining orders enabled the Receiver to realise assets of a number of companies, but later the orders were set aside and, although the court was sympathetic to the Receiver, it concluded that to allow the Receiver to discharge his costs from the third party’s asset realisations would violate that third party’s rights under the European Convention on Human Rights. The judges also concluded that the court had no power to order the Crown Prosecution Service to settle the Receiver’s costs, although it left the door open to the Receiver to seek a common law remedy. (UPDATE 08/01/2014: this is subject to a Supreme Court appeal.)

The Detail: A good summary of this case was published in Accountancy Age on 13 December 2012 (“Receivers’ remuneration not in the bag following High Court battle”), but for the sake of completeness, I thought that I would add my own version here.

Orders were granted appointing a Receiver and restraining two individuals from dealing with their assets or the assets of a number of their companies, “Eastenders”. On appeal, the orders were set aside and the court held that Eastenders’ assets were not realisable property held by the individuals. The Receiver applied for an order that his costs be paid from Eastenders’ assets, but the judge declined to grant such an order on the basis that it would violate Eastenders’ rights under Article 1 Protocol 1 of the European Convention on Human Rights (“A1P1”). At a second hearing, the court concluded that it was unacceptable to deny the Receiver payment of his costs and thus it ordered that the CPS pay the Receiver’s costs – this was the subject of this appeal.

In order to review the CPS’ liability to pay the Receiver’s costs, the judge first re-considered the basis under which it had been decided that the Receiver was not entitled to payment from Eastenders’ assets. Lord Justice Laws considered that, although the previous appeal court had decided that Eastenders’ assets were not “realisable property”, the Receiver was entitled to rely on the original order up to the point that it was set aside and thus he felt that the Receiver could recover his costs from what had been considered receivership property.

Laws LJ did not view the result in this case as a violation of Eastenders’ rights under A1P1, but this is where his view differed from the other two appeal court judges. For assets to be subject to a receivership order, there must be “reasonable cause to believe that the alleged offender has benefitted from his criminal conduct” (S40(2)(b) of the Proceeds of Crime Act 2002 “POCA”) and, on the documents presented to court, there must be “a good arguable case… for treating particular assets as the realisable property of the defendant” (CPS v Compton, as quoted in paragraph 78 of this judgment), but in this case the appeal that resulted in the setting aside of the receivership and restraint orders concluded that neither of these two conditions were met and thus the appointment of the Receiver over Eastenders’ property had been unlawful. A1P1 states that “no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law”; in this case, the Receiver’s claim to Eastenders’ property did not meet the exception, as the Receiver’s appointment had been unlawful.

But was the Receiver entitled to payment from the CPS? The court decided that it had no power under POCA so to order, although Laws LJ noted that the Receiver had not appealed the discharge of his lien and commented that in his opinion the lien was good. In conclusion, the other two appeal judges stated: “We acknowledge that the outcome of this appeal will be clearly unsatisfactory to a receiver who has undertaken work and incurred expenses in the expectation that he would be both rewarded and recompensed out of assets identified for him by the CPS. Our judgment does not exclude the possibility that he may have a common law remedy against those who sought his appointment. All that it does is to establish that he cannot be paid out of the companies’ assets in circumstances in which the legal basis for such provision is absent” (paragraph 72).

(UPDATE 08/01/2014: an appeal lodged by the Receiver is scheduled to appear before the Supreme Court on 24 February 2014. UPDATE 08/05/2014: the Supreme Court allowed the Receiver’s appeal that his fees be paid by the CPS. For a more detailed summary, see http://wp.me/p2FU2Z-6S.)